The biggest fear any crypto investor like You and me will have is: Which is the safest Crypto Stablecoin to have our funds parked in? And we all have somehow boiled down our options to either USDC, Tether or DAI. The stress does not stop there! Between USDC vs USDT vs DAI – which is the safest stablecoin to hold our funds on? You are not alone. We are all in this game together. So we did extensive research on this and also converted our BTC, ETH to each one of these stablecoins. Stored them on various wallets. Left them un-touched for several months. And finally come up with the best one. Here is our un-biased findings:
(1) USDT or Tether:
We all started our crypto journey by converting our cryptocurrency like Bitcoin, Ether etc. to USDT and vice versa. And we have done it so many times in exchanges like Binance, Kraken, Coinbase etc. It has always been effortless, quick and we have never so far faced any issues with USDT. The fees also seemed to be OK. But as time went by and our investment doubled and tripled in crypto, we started getting this fear. And this fear basically rose from all the negative news articles we have read about Tether. And to certain extend it seems to be true that USDT is printed at will. Infact many even doubt that the price of Bitcoin can be manipulated by Tether. But the main concern was, who is backing this massive stablecoin? Does the company behind USDT have equal amount of Dollars secured in the bank ( since we have been reading about this many a times )? Who are the promoters of this company? Why is not present is a strict jurisdiction like the USA? What would happen if the value of this stablecoin suddenly becomes 0 overnight? Who would pay us in that case? So many questions.
The good thing about USDT is that it has been in the market for long. And there has been no harm done to retail investors so far. So there is ample reasons that this will continue as good it is now. Recently the website of Tether has also updated that the stablecoin reserves are fully backed and related audit is done by 3rd party vendors etc. But still each one of us have. our own fears, that leads to search of other stableoins as well.
When it comes to USDT vs USDC vs DAI …. USDT takes the 3rd place in our ranking.
The fears we had on USDT has somehow given a shady image to the stablecoin in our minds. This fear had us find the next best stablecoin to hold onto. DAI is a stablecoin present in the MakerDao eco system. For those who dont know: MakerDAO is a Decentraised lending platform that is quite famous and doing very well. It is is headquartered in Santa Cruz, California, USA. One of the renowned American venture capital fund Andreessen Horowitz has invested $15 million in this company. The company is very much operational and trusted by millions globally. A well known venture firm backs it. The team information is transparent and seems to be filled with super intellectual people powering an intelligent business model. The DAI stable coin is traded and accepted in nearly all the exchanges in the world. Can be stored in decentralised wallets. And the price of the coin has been steady for some years now. Nothing bad has happened so far. All this gives a very good impression on DAI. And the backing and location of the company created TRUST. Basically the feel good factor is that if something wrong happens, we know who to approach and in which jurisdiction the company is.
On the flip side, the biggest fear about DAI is the business model behind it. DAI can exist only as long as ETHER and MAKER token exist. Because the stability factor of DAI is entirely dependent on the solid business model backing it. The decentralised lending model they have invented and it is a run-away success. Though we can agree that the underlying collateral in the business ie. ETHER can never go out of fashion…what if it happens? Will DAI survive then? The biggest fear factor of DAI is what will happen if by any chance the company backing it goes bust for some reason. Because the value of DAI is not backed by equal amount dollars in the bank ( like how USDC or USDT works ). But by a formula. And in no way has the company given any guarantee that the holders of DAI will be paid equal amount of their holding incase something goes wrong. This means they are legally safe. This is the main fear factor for investors to look out for a even better and safer stablecoin to hold their funds in.
When it comes to DAI vs USDT vs USDC …. DAI takes the 2nd place in our ranking.
(3) USDC or USD Coin
When it comes to choose between USDT vs DAI vs USDC: Our choice is USDC till date. As it seems to address all the fears DAI and USDT( Tether ) creates. USDC is managed by a consortium named ‘Centre’ of renowned companies. The companies that are in this consortium are COIN BASE ( a publicly traded company in the USA ), Circle ( a famous and successful payments company ). This stablecoin is pegged against the US dollar. And for each USDC in the market, a USD is maintained in the bank. And this is attested regularly by Grant Thornton LLP ( a famous global financial and audit firm ). Everything seems very legitimate and transparent and verifiable. Also if for some reason, the entire crypto market goes bust, we can redeem our USDC from the reserve. Apart from it, the stablecoin is present in many blockchain versions. Traded actively in nearly all the exchanges globally.
Why StableCoins instead of Fiat Money?
StableCoin has a fixed value usually equivalent to a dollar(or commodity or algorithms or cryptocurrency), which means 1 USDC=1 Dollar where USDC(USD Coin) is a stablecoin backed by an exactly equal amount of Dollar as a trust factor for people to start using stablecoins in their daily lives. Fiat money as we all know is being controlled by banks or financial institutions and is centralized where the power lies on one organization. On the other hand, Cryptocurrencies like Bitcoin and Ether have a splurge in their price every minute which makes them unrealistic to be used in day-to-day transactions instead of fiat money. So, they need to be treated like stocks. In this scenario, what we really need is a decentralized payment where the power doesn’t lie on one organization but spread across and also to be usable in the crypto space like real money that has a value like any currency. Thus, Stablecoins were introduced into the market to bridge this gap.
Real-world usage of StableCoins
Stablecoins can be used in various scenarios that are discussed below :
- To back up the currency crash of any country due to inflation. For example, the hyperinflation in Venezuela that commenced during 2016 and until now every year their inflation rate increases multifold with a total of 4085% last Dec 2020. Consumer prices have risen 70% that their money has no value anymore locally and globally. To mitigate this kind of risk, we can store them as StableCoins for holding purposes and can convert any fiat currency whenever required for minimal fees.
- Day-in-Day-out currency for all shopping, coffees, entertainment etc., we can use stablecoins for payments provided it is accepted by the vendors.
- Simplified recurring payments by organizations to their employees. All they have to do is to create a smart contract to pay employees every month on the same day with so many stablecoins. Companies may benefit a lot if they paying for Global employees which might dramatically reduce the conversion fees for every country. Similarly, we can use it for paying the monthly rental, subscriptions, power bill, mobile bill etc.,
- Remittances for any P2P transactions through cross-border is really hectic with Western Union, Forex etc., The conversion rate fees + transaction fees + whatever fees in sending a wire transfer can be done at a very low rate when compared relatively with stablecoin transfer.
When do I cash out my Stablecoin?
Anytime through the crypto exchange through which you used it buy stable coins. You can use the same exchange to cash it out to any fiat currency based on the country in which you reside. The wire transfer fee for the bank, Trading fees on the exchange, withdrawal fees from the exchange and liquidity cost are all at their minimal cost with a maximum of 0.1%. Keep in mind that you cash it out only when you need it, but to secure it, it needs to be as stablecoin in your exchange or wallet. For trading purposes, it needs to be as cryptocurrency as the price may increase or decrease in the crypto space.
The advancement of DAI in the crypto market during 2018 was maintaining a 99th rank, $56 Million market cap with $4.5 Billion in daily trading volume. While during 2020, it was ranked the 64th with $105 Million in market cap and $17 Million on daily trading volume. During early 2021, it ranked 27th with $1.6 Billion in market cap and $208 Billion in daily trading volume.
Finally, all of these stable coins seem pretty much similar as they relatively hold their peg dollar. They have enough liquidity and availability but if you had to choose one amongst them, it all depends on the investor’s risk level and use case. In the long run, when you look at each of these tokens they have their own pros and cons but they can be used in different scenarios as such or combinations.